Direct channel margin lending on the rise

Returning investor confidence is injecting some life into margin lending, but most of the take-up comes through the direct channel and not financial planners, a new report shows. 

The Investment Trends September 2013 Margin Lending Investor Report found while the overall margin lending market shrunk by 3 per cent to $11.8 billion between December 2012 and September 2013, the direct channel had bucked this trend - growing by $480 million during the same period. 

The number of overall margin lending clients fell by 5 per cent in the last year, compared to 20 per cent the previous year, said S M Shahed, an analyst at Investment Trends. 

“The rate of decline in the number of active margin lending users slowed considerably and these current users began drawing down a larger part of their loan in 2013,” SM Shahed said. 

While the last 12 months saw 15,000 clients stop using margin lending altogether, about 4000 investors returned to this type of product after being dormant, while the sector also saw about 6000 new clients. 

The number of investors planning to establish their first margin loan within the next 12 months also rose significantly. 

The report, which was based on a survey of 2200 investors, pointed out the rise in margin lending intentions came off the back of increased investor confidence. 

By September 2013, investors were expecting an average return of 7 per cent per annum from the Australian equity market, compared to just 3 per cent a year ago. 

“Helping investors identify opportunities will be the key to realising this demand,” said Shahed. “About 44 per cent of those planning to increase their margin lending usage over the next year say they are waiting for the right investment opportunities to arise.”